Fill This Form To Receive Instant Help
Fill This Form To Receive Instant Help
Homework answers / question archive / Floyd Industries stock has a beta of 1
Floyd Industries stock has a beta of 1.6. The company just paid a dividend of £0.7, and the dividends are expected to grow at 5 percent. The expected return on the market is 12 percent, and Treasury bills are yielding 5.5 percent. The most recent share price for Floyd is £63. Calculate the cost of equity using the SML method. a) None b) 15.9% C) 6.17% d) 7.28% 1:49 PM
Correct Answer is b) 15.9%
Risk free rate of return (Rf) = 5.5%
Beta = 1.6
Market return = 12%
As per SML is Cost of Equity =Risk-free rate of return + beta (market return - risk-free rate of return).
=5.5% +1.6*(12%-5.5%)
= 15.9%
Cost of Equity = 15.9%
Thus, correct Answer is b) 15.9%
